Monetary policy formulation has become more difficult in the current environment due to delays in data and also frequent revisions, Patra said. “Based on data from one month ago and three months ago, I have to estimate what inflation and economic growth will be a year from now,” he said, adding that policy must be forward-looking but based on hot data.
He pointed out that the RBI’s Monetary Policy Committee (MPC), which will announce its rate decision in the first week of December, will actually depend on inflation figures for October and GDP growth figures for the July-September quarter – the latest available data sets.
The next meeting of the Monetary Policy Committee is scheduled for December 5 to 7. Patra said that despite the Global Financial Crisis (GFC), global inflation has barely budged, but things have changed dramatically. “Today, inflation is at levels not seen in four decades, resistant to aggressive and frontal monetary tightening around the world. The existential question being asked is whether the world is permanently transitioning from a low-inflation environment to one of high inflation. 1. It’s here time to review monetary policy objectives,” said Patra.
He lamented the fact that unlike official data which is almost always revised, the RBI does not have the luxury of reviewing its interest rate movements.
“Another complication with this whole march of excitement is that all the data on this NSSO (National Sample Survey Office) data from three months is subject to revision. And sometimes the change is drastic,” he said.
“If NSSO has the right to revise figures, if companies can change revenue figures, I should also be able to change September rates (last policy),” Patra joked while addressing bankers at the SBI Banking and Economic Conclave.
Despite all the challenges, monetary policy needs to look to the future, he said. “Monetary policy must be forward-looking because of how late key interest rate changes are reflected in the markets and ultimately reflected in lending rates, housing loan rates and yields. Therefore, monetary policy can only hope to respond to inflation in the future, not today. inflation,” Patra said.
As Deputy Governor, Patra’s career Governor oversees the central bank’s monetary policy, among other things. He is also part of the Monetary Policy Committee which also has external members.
Patra said that apart from domestic challenges, volatility and outdated data, the MPC also has to contend with global shocks like the war in Ukraine, which is also leading to a rise in oil and food prices here in India.